Tax Base and Revenue Forecasting

1
Tax Base and Revenue Forecasting

• Tuan Minh Le
• Presented at Workshop on Public Finance
  Management in Bhutan
• Washington D.C., August 16-20

2
Purpose

• For budgeting.
• For automated establishment of tasks for
  collection of taxes.

3
Tax Base and Revenue Forecasting Models

• Macro-based modeling
• Micro simulation
• Monthly tax receipts modeling
• Input-output approach
• Aggregate national account approach

4
Macro-based modeling

• Basic data requirements
• Tax collection.
• GDP.
• GDP deflator.
•  
• Relied on basic regression specifications. E.g.,
  
• LnT a bLnGDP e

5
Micro simulation

• To forecast tax revenue, and
• To assess impact of policy changes.
•  
• An example (personal income tax)

• Basic data requirements
• Individual or family-based annual income tax
  returns.
• Household surveys to cover non-filers.
• CPI, growth rates of population, GDP, and
  investment.
• PIT codes.

6
Micro Simulation--Steps

• Step 1 Sample design and database construction
• Sampling (e.g., stratified Strata established
  on basis of income sources, place of residence,
  income level etc.)
• Data cleaning and sample weight (idea
  distribution of samples compared with the one for
  whole population).
• Data aging. Forecasting of growth factors e.g.,
  population, GDP, investment etc.

7
Micro Simulation--Steps

• Step 2 Construction of typical taxpayer tax
  calculator model
• Typically three components
• Personal income tax parameters.
• Taxpayer personal information.
• Tax calculator module.
•  
• Step 3. Construction of aggregate tax calculator
  modeland impact distribution analysis

8
Monthly tax receipts modeling

• Basic data requirements
• actual monthly receipts.
• projected GDP growth or other tax base proxies.
• Where,

9
Input-output modeling (typical for VAT model)

• Basic data requirements
• Input Output Table.
• Household Expenditure Survey.
• Government expenditure.
• VAT code.

Step 1 Construct and estimate VAT base
Step 2 Estimate VAT collection taking into
account compliance rate
10
Aggregate national account modeling

• Data requirements
• GDP at market price and its components e.g.,
  private cons., government cons. (wage and
  non-wage government expenditures), investment,
  and trade balance.
• VAT code.
• Foreign expenditures in domestic market and
  expenditures abroad by residents
• Value added of exempt sector.
• Output purchased by taxed sector from exempt
  sectors.
• Input purchased by exempt sectors.
• Values of goods and services provided by
  zero-rated sectors.

11
Aggregate national account modeling
VAT base (prior to further adjustments) For
framework of estimation, see Zee, Value-Added
Tax, in Tax Policy Handbook, Shome, ed., IMF
1995.